Frozen by Fear

Many people have been asking Dan if it is way too late to protect themselves. Are you sitting out there thinking is it too late to protect your savings? Maybe you shouldn’t have been so heavily invested in stocks? Are you afraid that you’ve placed yourself or your family in a horrible situation?

My MoneyMan says that it is still a matter of pride –that it would be even more humiliating to make the price move, to protect yourself, and just as you do it, people are running and they start buying and the prices go up and you get whipsawed—and this would feel horrible! Is that what people are really worried about?

Personally, losing my life savings would be devastating enough, but being worried about how horrible I was going to feel, how tiny and smashed my ego would be . . . silly, but simple humanity. The idea that the same idea hits the whole herd at simultaneously and drives them to act out of panic and fear is sadly true.

Dan’s been watching people and the markets for over 50 years, he believes that all of us, as a group, are connected by more than the things we say and the thoughts we have, more so than a strict psychology course could ever teach us in college . . . millions of people around the country are thinking the same thing at the same time--I wish I would have sold these stocks a long time ago, now if I sell them, it's going to turn out to be too late. So what do they do instead? Nothing. They are paralyzed, like deer in headlights.

This one is simple, according to the MoneyMan . . . If you buy more stuff at the bottom, it will make your money back for you and you won't have to lose any money. This is why he’s pretty convinced that we will go a lot lower, based on all of this market x-ray stuff that he does (mostly about the intensity of supply and demand).

It is quite straightforward if you ask me. When there is no demand for stock, the price is going to go down. How can the price of something go up when there are no buyers, right?

When sellers want to sell, and there aren't buyers for them to sell to, the sellers have to cheapen the offer, they have no choice but to take it down . . . the more desperate they are, the more they will bring it down. That’s what Dan says they are doing right now, it’s basic supply and demand.

Now hold on, here's the part that you don’t see.

Demand in the market is way lower than the last time we were down here at this level, which was just a couple of weeks ago, back in January . . . and supply seems to be much higher. The truth is that nobody wants to buy, but lots of people are getting more and more anxious to sell, people are less willing to buy stocks, more eager to sell stocks than the last time we were at this level. You are above the lows in January, you are way above the lows of last July, (as far as the S&P 500 anyway). You have prices still higher at the moment than those times, but demand AND supply are way worse.

Here is the psychology factor: There is an insidious trick that nature is playing on you right now, many of you, not all of you, but according to my MoneyMan, who has been studying this particular thing in bear markets for 20 years, the reason we do this is because . . .

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